I’m Eric Lanigan with Lanigan and Lanigan
attorneys in Winter Park. We do bankruptcies and we do a lot of bankruptcies
the question that we always have to be asking ourselves and be honest with ourselves is
is bankruptcy the right answer for this particular client? I’m reminded of what a doctor told
me one time talking about medical specialists and he said, you know if what you own is a
hammer then everything you see is a nail. And that obviously means that if you’ve got
a hammer and you make money pounding nails, then you see money as everything is a nail
that needs to be pounded. And we always have to double check ourselves
to make sure that if we are thinking about things not always just thinking about things
in a bankruptcy context but looking at things in the context of is bankruptcy the solution
to the individuals’ problem? And what brings this to light is a case that
we recently had with a couple with very high incomes, both of them very successful. Income
in probably in the neighborhood of $35,000 a month combined income. The problem was that
is that several years ago they had gotten involved in several very high end real estate
investments and signed guarantees on something like four and a half million dollars worth
of loans. And all of these real estate projects and
another business venture all collapsed and so while they have a very high income level,
they’re suddenly staring at four and a half million dollars in business debt and another
million and half dollars in personal debt. And given their ages this is debt that
they were not going to be able to pay. Now, the first blush was well because their
debt is primarily business related, they could file a Chapter 7 bankruptcy and just wipe
it all out. And because of the exception in the bankruptcy code that you do not have to
meet stay under the income levels for filing to qualify for Chapter 7 if in fact your debt
is primarily business debt and if it is, then your income level as far as making too much
money to file chapter 7 is now irrelevant. There may be other factors but that is at
least irrelevant. So that would be a very easy solution for those individuals. However
what we found out is that they entered into a settlement agreement on the largest of the
debts which was in excess of three million dollars where they would be paying a very
very small fraction of that three million dollars and the problem was every agreement
like that I’ve ever seen in my entire working career said that if you default on that obligation
then the debt reverts back to the original amount. This agreement for whatever reason
it did not. So even though they defaulted on that settlement agreement on the debt it
did not go back, their liability, did not go back to the original three and a half million
dollars. So they could not file a chapter 7 bankruptcy. So what you have to be careful of is if you’ve
got a hammer and every problem is a nail then the first thing you say is well we’ll file
Chapter 13 bankruptcy and we’ll go through the repayment of the debts through a structured
plan in Chapter 13. But the problem is with these individuals because their income is
so high they would’ve been paying well in excess of ten or $15,000 a month in payments
through Chapter 13 Bankruptcy. Well if you’re going to pay that much money you don’t need
bankruptcy to settle your debts. And the reality is a good debt settlement slash asset protection
plan would ultimately get those debts settled for way way less than that. So you have to be honest with yourself and
say Chapter 13 in fact bankruptcy in its entirety is not the solution to your problem and this
is the way that you’re going to have to deal with your problem. And move forward from there. So be very careful
that when you’re talking to a lawyer that you’re not in the situation where he’s got
a hammer and therefore every problem’s a nail. Again I’m Eric Lanigan with Lanigan and Lanigan
attorneys, Winter Park, Florida.